Euro zone seen giving tentative OK to Greek aid tranche

BRUSSELS, Nov 19 (Reuters) - Euro zone finance ministers are
likely to give tentative approval for the next tranche of loans
to Greece on Tuesday although the money is unlikely to be
disbursed before December and a deal on debt reduction may also
require further talks.

Officials familiar with preparations for the finance
ministers' meeting expect a "political endorsement in principle"
on unfreezing loans to Athens, after Greece completed almost all
the reforms that were required of it in exchange for funding.

The final go-ahead from the ministers is likely to come only
once the remaining few Greek reforms are in place and once there
is agreement in the euro zone on how to reduce the country's
huge debt and secure extra financing while it is being done.

Greece got a second financing programme from the euro zone
and the International Monetary Fund in February, but two
subsequent parliamentary elections and a deeper than expected
depression threw its reforms and fiscal consolidation efforts
off course and lending was frozen in June.

To get lending going again, Greece had to show it was fully
committed to a detailed package of economic reforms, called
"prior actions".

But the euro zone and the IMF also want to be sure that
Greek debt, seen at almost 190 percent of GDP next year, will,
at some point, fall to a more sustainable 120 percent so that
they will not have to keep financing Athens forever.

The IMF and the euro zone are at odds on whether to shift
the original target date for Greece to do that from 2020 to
2022, torn between the need to retain market confidence and
allowing the Greek economy some breathing space.

How to reduce debt in a country whose economy is to contract
for the sixth year running in 2013 will be another topic for
discussion, based on a debt sustainability analysis prepared by
the "Troika" - the IMF, the European Commission and the European
Central Bank.

Options include halving the interest on existing, bilateral
loans to Greece from the current 150 basis points above
financing costs, lengthening their maturities, lowering fees
charged by the temporary bailout fund EFSF and a debt buy-back.

Germany has floated an idea that Greece could buy back half
of its 60 billion euros' worth of bonds remaining in private
hands offering 25 cents for one euro.

Euro zone officials have asked for a legal analysis of a
debt buy-back and a more operational description for the Tuesday
talks.

German Deputy Finance Minister Steffen Kampeter said that if
a deal on cutting Greek debt eluded euro zone finance ministers
on Tuesday, work would continue this week.

Once there is agreement, proposals on how to cut Greek debt
and provide additional financing can be sent to national
parliaments for approval, a step that is expected to be
completed by Nov. 30.

This will give Athens time to complete the few outstanding
"prior actions". International lenders will check if the
remaining reforms are in place on Nov. 28 and euro zone finance
ministers will make the final decision to pay the next tranche
to Athens on Dec. 3, according to the schedule seen by Reuters.

Greece and the European Commission would then sign a revised
memorandum of understanding on Dec. 4 and Greece would get the
money on Dec. 5, according to the timeline.

Having missed two tranche payments because of the suspension
of the programme, Greece should now get a total of 44 billion
euros if the next tranche, due in December, were to be paid out
together with the overdue ones.

More than half of that total is cash to recapitalise Greek
banks after a restructuring of Greek debt badly shook their
capital base. But some officials said that incomplete data on
the recapitalisation might result in the payout of 31, rather
than the full 44 billion.